Warrantable Versus NON-Warrantable Condo Mortgage Guidelines
Warrantable Versus NON-Warrantable Condo Mortgage Guidelines
This BLOG On Warrantable Versus NON-Warrantable Condo Mortgage Guidelines Was UPDATED On April 30th, 2019
A condominium unit is an apartment that is individually owned by a private homeowner. There are differences between Warrantable Versus NON-Warrantable complexes. The difference between Warrantable Versus NON-Warrantable units is that non-warrantable condos does not meet Fannie Mae and/or Freddie Mac Mortgage Guidelines. To be classified as warrantable, 51% or more of the condo owners need to live in the cono complex. Lenders have different guidelines on Warrantable Versus NON-Warrantable Condo Units:
- Condominium loans are much stricter than single family home mortgage loans
- This is because not only does the condominium unit buyer needs to qualify for a condominium loan but the condominium complex needs to qualify
- Condo complex meet the lender’s lending guidelines and standards
- Condominiums are viewed riskier to mortgage lenders
- Lenders have higher credit standards apply for condominium mortgage loans
Purchasing A Condominium With FHA Loans
Just because a home buyer is pre-approved with an FHA loan does not mean that the home buyer can go and put a purchase offer with any condominium unit.
- FHA will not approve condominium mortgage loans unless the condominium complex is FHA approved
- To see if the condominium is FHA approved, condo complex needs to be on the HUD Condo Approved List
- If the condominium is not on this FHA approved list, ask the condominium homeowner association manager if the condominium complex is FHA approved
- if it is not, then condo buyers need to seek another condominium where the condo complex is FHA approved.
What Is Difference Warrantable Versus Non-Warrantable
Condominium complexes are either classified as warrantable condos and non-warrantable condos.
- A warrantable condo unit is a condominium complex that meets the eligibility for condominium mortgage loans to be sold to Fannie Mae and Freddie Mac
- Residential mortgage lenders who originate condominium mortgage loans do not keep the mortgage loan on their books
- Once they fund the condominium loan, they package these loans up to and sell them on the secondary market which is either Fannie Mae or Freddie Mac
- In order for Fannie Mae or Freddie Mac to purchase closed loans from mortgage lenders, they need to be warrantable condo loans
Non-warrantable condo loans are condominium complexes that do not meet Fannie Mae or Freddie Mac lending guidelines and do not meet conforming lending guidelines.
- Fannie Mae and Freddie Mac will not purchase condominium mortgage loans that are secured by non-warrantable condo projects
- To be classified as a warrantable condo project, 51% of the condominium unit owners need to be owner occupant primary residence condominium unit owners
- Condotel units are considered non-warrantable condominium units
How Can I Find Out Whether A Condo Is Warrantable Versus Non-Warrantable Condo
There are so many cases where a condominium unit buyer gets a pre-approval. They do not have a solid pre-approval letter and submits a purchase offer on a condominium unit for a 5% down payment condo conventional loan. Everyone is under the assumption it is a warrantable condo and goes through the mortgage application and approval process to find out at the last minute that the condominium project is a non-warrantable condominium complex and the loan gets denied.
- One of the first things a condominium mortgage lender should ask before anything else is whether the condominium project is a warrantable condo or non-warrantable condo project
- The mortgage loan originator should provide the buyer with a condominium questionnaire to have the condominium homeowners association manager to complete and sign
- The mortgage loan originator should get clearance from the mortgage underwriter whether the condominium complex is a warrantable condo
- If it is not, then condominium cannot be done as a conventional loan and need to find a non-warrantable condo mortgage lender
- A condominium complex that has over 51% of the condominium units that are rentals is considered a non-warrantable condo project
- The only way you will get financing on a non-warrantable condo unit is through a portfolio lender
How Can I Get Financing For A Non-Warrantable Condo Unit?
Buyers who are interested in buying a non-warrantable condo, a traditional lender cannot do the mortgage loan. Non-warrantable condo and condotel unit mortgage lenders are portfolio lenders. What is a portfolio mortgage lender?
- A portfolio mortgage lender is a lender that does not sell their loans to the secondary market
- Portfolio lenders will keep the loans they originate in their books
- Portfolio lenders will normally just offer adjustable rate mortgages, also known as ARM
Here are the qualification requirements for non-warrantable condo unit mortgage loans:
- Minimum 20% down payment
- A minimum credit score of 680
- Minimum loan size of $100,000
- Non-warrantable condo unit needs to be meet the following requirements
- 500 square feet
- have one bedroom
- have a functional kitchen
- 30-year loan program but adjustable mortgage rate loans only: 3/1 ARM, 5/1 ARM, 7/1 ARM
- Maximum 40% debt to income ratio and one-year reserves for both the primary property ( if the condo is a second home or vacation home ) and the new non-warrantable condo unit
Condotels are privately owned condominiums within a hotel complex or resort where the hotel homeowners association manages the condotel unit.
- Condotel units are considered non-warrantable condos and portfolio lenders who finance non-warrantable condo units can finance condotel units
- The same mortgage lending standards apply with condotel financing as with non-warrantable condo units
- However, the down payment requirement is 25% versus the 20% required for non-warrantable condo units
Gustan Cho Associates Mortgage Group are condotel and non-warrantable condo experts. Please contact us at 262-716-8151 or text us for faster response. Or email us at firstname.lastname@example.org.